CIELO SA Instituicao de Pagamento

F:28MA

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon, and thank you for holding. Welcome to the Cielo results conference call to release results for the third quarter '20. With us today, we have Mr. Paulo Caffarelli, Gustavo Sousa and Thiago Stanger. This event is being recorded. [Operator Instructions] This event is also being broadcast live via webcast and may be accessed through Cielo's website at ri.cielo.com.br, where the presentation is also available. Participants may view the slides at their own convenience. The replay of this event will be available shortly after the conclusion. [Operator Instructions]

Before proceeding, we would like to mention that forward-looking statements are based on the beliefs and assumptions of Cielo's management and on information currently available to the company. They involve risks and uncertainties as they relate to future events, and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that macroeconomic conditions, industry conditions and other operational factors could cause results to differ materially from those expressed in such forward-looking statements.

I would now like to turn the floor over to Mr. Paulo Caffarelli, who will begin the presentation. You have the floor, sir.

[Paulo Caffarelli, executive]

Good day to all of you.

I'm going to refer to the third quarter '20 and refer to the more critical parts. In the third quarter, Cielo showed its ability to recover. And as you can see in the presentation, we had a growth of TPV of 29.4% vis-a-vis the second quarter. Our active client base increased 7% also vis-a-vis the second quarter '20. And in the Retail and Entrepreneur segment, the long-term segment and small businesses, we had a record penetration of 31.8%. You will recall that 1 year ago, our penetration was of only 17%. And once again, this points to our strategy where we are always concerned and very emphatic when it comes to significantly enhancing our share in these products. We have 50% of share. Others have 70%. And we see that we have an important path that we should still go through to be able to add much more revenue to this process.

And we think that the acquiring part is no longer seen from the MDR viewpoint. It is a sum of MDR, of the rentals, and of course, anticipating receivables, the RV. Another thing that shows us that we're on the right path is the productivity of our sales force, which was the highest in the year when we compare this with the first and second quarters. The third quarter pointed to the highest productivity of our sales and administrative teams.

A highly important point. When I refer to our broad goal, that is to create a better balance in our client portfolio between large accounts and retail. You will recall that a short time ago, we had 70% of concentration in large accounts and 30% in retail. Nowadays, this figure has changed considerably. It is still not ideal. We have 62% in corporate and 37% in retail. And our goal as part of this purpose is to work with a balance, a balance of 50% corporate and 50% retail. Our increase in the retail sector to 37%, therefore, is a portrait that we are on the right path. And on the other hand, we need to value our portfolio and the participation of the corporate segment. It is the corporate segment that gives us data, volume and, above all, the customization of services.

What does this mean? That sometimes clients mandate solution. And this solution, of course, can be used with other customers and ends up being a new product here at Cielo.

As important as everything that I mentioned is our persistency to reduce expenses through the [ OBP ], which is a 0 budget program. If we compare the first 9 months of 2020 with the first 9 months of 2019, we saved BRL 150 million. This is emblematic for us, showing that all the efforts that we are doing have had a good result, and we're not going to stop here. We can continue to enhance our work in terms of budgeting for the year 2020 to readjust the company cost to our ability to generate results.

Cielo does have this traditional operation for 25 years in the market. It continues to be a market leader. We have the highest market share. But along with all of this, share -- Cielo has to take part in the digital transformation. The pandemic has leveraged this digital transformation in our segment, and I can say that Cielo became a star in this. We now have a digital platform that provides services and solutions to the client, and oftentimes, solutions to the clients of our clients. This is called Cielo Digi.

During the pandemic, we had products that had exist formerly like the Super Link. When the doors had been closed down, we had 850% of new accreditation at Cielo for this program. And if we add Super Link NFC, near field communication, which is a contract technology and QR code, they are responsible for 20% of all of our transaction. This is, of course, of the utmost important because, going forward, we will have a greater demand for this type of product. And Cielo, of course, is prepared to provide this type of alternative compared to the traditional POSs.

Our share has increased in this segment. And what points to our aptitude in this technological area is the fact that [ Popai ], the app, was chosen among all the other apps. Cielo participated in a selection for the acquiring provider with the central bank and the regulator agency in Brazil. We were selected. And it is our expectation that we will be able to begin working with the regulator. And in September, along with Bradesco, we launched Bitz. We offer full technological support and means of payment for Bitz. We have partnerships with AMBEV, BRF, among others. And at present, we are facing new launches of the central bank that, of course, are very important for the development of the country, so that the country can be acknowledged worldwide as a benchmark in financial systems, in digitation and means of payment. In November, we have the arrival of the PIX and open banking and easy business.

When it comes to the PIX, many people say, but can PIX become an obstacle to the acquiring business. Obviously, part of the debit transactions may migrate to PIX's would be natural. But what I tend to say to our workers at Cielo or those who ask, PIX will represent a great opportunity to work with the Brazilians, more than 60 Brazilians that do not have a bank account. When we analyze those 60 million Brazilians -- and they were the ones that received emergency help that we led during the pandemic, we were ahead. We lent our platform to competitors during a period until they were able to adjust to this.

And it shows that in Brazil, there is a whole universe for banking inclusion, for financial inclusion, banking inclusion, financial education. And all of these people will be part of the consumption market. And this corroborates an analysis that we do that, in Brazil, less than 40% of the families in Brazil are consuming through debit and credit cards. Imagine increasing this to 60%, the number of clients that will use debit and credit cards.

So we have to look at PIX based on the jurisprudence of India. India launched PIX in a situation where everybody thought they would take over all the traditional transactions. And this brought new entrants into the process. Therefore, we have a great deal of hope and believe that Brazil does deserve this stage of level when it comes to all of these new upgrades that the central bank and the regulators are doing.

To conclude here, I would once again like to reaffirm our basic strategies. And as I mentioned, we're on this path already. The first of them is the balance of the portfolio between corporate and retail, 50%. Corporate brings us volume. Retail brings us margin. And with margin, we can have large accounts. With lower margins, it will also bring us good results. It is necessary to significantly increase our term products, especially with the retail clients. That 32% that we already have is a record, but we have enormous space to continue to grow in this.

And I remind you that the MDR is rental in the acquiring business and anticipated receivables. We must never forget that we have a commodity product in our business. And besides the value, and besides the technological development and overcoming, besides the advertising campaigns, what is important is the client experience. And those who will win the game are those that better service their clients, and Cielo is the point of attention.

Pricing, of course, is very important. This war on prices in a certain way has been reduced vis-a-vis the past. There is a limit to it. And pricing uses intelligent instruments, technological tools, methodologies that allow us to optimize the way that we set up prices.

Now an increase of sales -- less than 2 years ago, we did not have our own channel for accreditation. At a certain point, we had a substantial number of clients. And we have invested heavily in the channel, expanding it precisely to have that ability to absorb the clients because of the size of our company. So the sales increase will take place through our own channels and that of third parties, which will bring us a significant volume increase.

And as part of that strategy to create a balanced business, as usual, day to day, with proper operations, but never forgetting the digital transformation that has to occur concomitantly.

And of course, not less important is operational efficiency. Of course, we have to look in-house and constantly seek operational efficiency.

I would like to end here. We would like to thank all of our employees who have achieved this great history in the third quarter.

I now give the floor to Gustavo, and we will then go on to the Q&A session. Thank you.

[Gustavo Henrique de Sousa, executive]

Thank you, Caffarelli. A good day to you. And for those who are following up on the presentation, we are now on Slide #4. We show you some metrics that show the recovery vis-a-vis the second quarter '20.

The first metric is TPV, where we had a growth of 29.4% and -- in the third quarter vis-a-vis the second quarter, our active client base increased 6.8%, And the TPV of Cateno had a growth of 28.6%. And we continue to observe an increase in productivity in our commercial teams, sales teams.

As Caffarelli mentioned, we had a record penetration of prepayment in the SMB and LT segment, reaching 31.8%.

We now go on to Slide #3 (sic) [ Slide #5], where we have 3 graphs, and we have shared this with you since the beginning of the crisis.

At the top, you'll see the behavior of the ICVA, the blue curve compared to the gray curve, which was the baseline before the crisis. In the last quarter, we had a gradual recovery month after month. In the month of September, the ICVA was 6% below the baseline before the crisis. And especially in the last week, this performance aligned out. And the same trajectory can be observed at Cielo and Cateno, a gradual recovery month after month. So that in the month of September, both Cielo and Cateno were very close to the baseline.

Now this slide clarifies that the greatest impact of the pandemic took place in the second quarter of this year.

In Slide #6, still speaking about the impacts of the pandemic, we go back to information we showed you in the second quarter. Our estimates of lost volume because of the volume reduction caused by the pandemic, because of the lack of circulation of people, we had a volume reduction at Cielo of BRL 50.9 million; and in the third quarter, a volume reduction of BRL 21.1 million. Now this volume, this lesser volume means that we have BRL 155 million less.

Now using the same reasoning for Cateno, we had a volume reduction of BRL 19.5 billion in the second quarter and the same reduction in the third quarter of BRL 6.7 billion. This BRL 6.7 billion led to a reduction of revenue of BRL 62 million for Cielo. Once again, yes, we did have an impact of the pandemic in the third quarter but at a much lesser magnitude if compared with the second quarter.

We go on to Slide #7, where we summarize our financial performance. Net operating revenue, BRL 2.9 million, a growth of 17.6% vis-a-vis the second quarter; EBITDA, BRL 480 million, more than double that of the second quarter; and the recovery of the EBITDA margin reaching 16.7%. Net income of BRL 100 million represents a recovery vis-a-vis the losses recorded in the previous quarter.

We now go on to Slide 8, of net income by business unit. In light blue, Cielo Brazil, and we see a strong recovery. In this vision of Cielo Brazil, we ended up at BRL 107.5 million of net revenues. We also had a recovery in Cateno's results. This is a proportional view, 70% of the stake that Cielo has in Cateno. And in other controlled companies, we still have losses due mainly to Cielo U.S.A. We have an operation in deficit that is in a turnaround process. It presents a negative result, which is boosted by the devaluation of the real at present.

We go on to Page #9, where we see the volume and the active merchant base and prepaid volume. We highlight the gray columns for quarters that were more impacted by the pandemic; and in the balloon above each graph, the recovery.

We begin with financial volumes, which totaled BRL 165.6 billion, a growth of 20% vis-a-vis the second quarter. Our active merchant base ended the quarter with 1,426,000, a growth of 7% vis-a-vis the second quarter; and a volume of prepaid products of BRL 12.8 million, a penetration of 14% in our base, but this is our total base. Further ahead, we will see what happen with this metric in the long-term -- long-tail segment.

In Slide #10, our revenue yield. And I draw your attention to the comparison of the second quarter '20 and the evolution in the third quarter in the graph below. We had an evolution of 0.06 percentage points in revenue. I am now referring to the second purple column, the effect of price in MDR and other points of our pricing. And the rest is due to the first purple column, where we have a dilution of revenue that do not relate to volume, especially referring to rentals now. As rentals do not work side-by-side with volume when we have a volume recovery, we end up having a dilution in our revenue yield.

We go on to Slide #11 to speak about innovation, new products. In the first graph, a year-on-year growth of e-commerce, with a growth of 98% vis-a-vis the same quarter in 2019. In the graph below, an evolution of e-commerce transactions plus NFC and QR code, totaling 19.4% of the total captured at Cielo.

We go on to Slide #12 to show you the evolution of one of our productivity metrics for the hunter sales force. The metric is the acceptance of commercial proposals per day per hunter. This is strategic information for Cielo, and all of this is on a base of 100. The first quarter of this year, we had a significant evolution and in the second and third quarters as well when it comes to productivity of the sales team.

On Page 13, another highlight referring to how we have managed the large account segments and SMB and long-tail segments. The large account segments that at the end of the second quarter 2019 represented 68% of the total volume of the company, now in the third quarter represents 63% because of a great deal of aggressiveness that we have observed in pricing for the large accounts, Cielo has become ever more selective and has no longer sought out volume at any price. In some cases, we're able to reprice. But oftentimes, we lose clients to the competition if the competition works with overly aggressive prices. We have this movement of dilution, also caused by a growth in share in the SMB and long-tail segment. They represented 32% in the second quarter 2019. We have now increased this.

Now besides the management of the client portfolio and seeking greater share in TPV for the long tail segment, in this segment, we have sought a higher penetration of prepayment products. Although at Cielo, we observed a reduction of total penetration. This is due to less emphasis on prepayment products in large accounts and a greater focus on SMB and long-tail segments. And I'm reserving too ARV volume and Receba volume. It was 23.9% in the second quarter of '19 and has increased to 31.8% in the third quarter '20.

We go on to Slide #14 to speak about operational efficiency and our expenditures. Normalized costs represent simply an adjustment. So that you can understand this better, we removed the brand fees. They relate to volume. And when our volume is strongly impacted by the pandemic, we prefer to exclude this so that there is greater understanding by everybody. We have also taken away the amortization in the sale of equipment. We use this broadly last year, with a significant reduction of the use of subsidies this year. And from this account, we have also taken away the services rendered by banks in accreditation and new clients and nonrecurring expenses. Thanks to this, we have a reduction of 3.6% vis-a-vis the second quarter this year and a reduction of almost 11% vis-a-vis the third quarter in 2019. When we look at the first 9 months of 2020 with the same period of 2019, the reduction was BRL 115 million, which means a savings of 7%.

We go on to Slide 15 to speak about liquidity and leverage. We ended the quarter with a total volume of ARV of BRL 3.6 million; and the cash balance, BRL 6.39 million. We have amortized all of our short-term debt. Our next obligation is to redeem the FIDC quota in 2021 and all the rest of the debt concentrated in 2022, 2023. We have an improvement in our leverage evolution. We ended the third quarter with a leverage of 1.08x.

I'm on Slide 16 now, where we have a summary. We have a recovery in volumes vis-a-vis the second quarter, higher production with cost efficiency, resumption of merchant base growth, record penetration of prepayment in the SMB and LT segment and significant improvement in the leverage of the company.

Before concluding the presentation, I go on to Slide 18, where we refer to something that was already mentioned by Mr. Caffarelli. Cielo has created a digital platform for relationship with its clients. We also have training for clients seeking more digital solutions. We have a partner in the Bradesco digital platform, the Bitz recently.

To go on to Slide 19, another announcement that we had recently in the market. We're selling of the Cielo stake at the Orizon Company for BRL 129 million. That has already been announced. We're awaiting the signature of the contract and the approval of CADE. What has also been announced, we have created an area focused on the credit cycle to enhance our product offer to clients. Internally, we're assessing the SCD license. And recently, we obtained a license for Cielo to be able to become an electronic currency issuer. This will go live in November of this year.

With this, I conclude the presentation. We now go on to the question-and-answer session. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Gustavo from Goldman Sachs.

[Gustavo Schroden, analyst]

I have 2 questions, if you will. The first refers to volume. You truly have had an increase of 29.8% quarter-on-quarter. We have to take this growth into account. Now if we do a breakdown of this, how much of this was part of the corona vouchers as part of this volume? And how sustainable is this growth if we can work with these growth levels in the fourth quarter as well?

My second question refers to the PIX. Caffarelli mentioned that there is a significant number of people that will end up being included into the payment system that will become bankerized. Now on the one hand, the company would only gain through the inclusion of these people. And how does Cielo look upon the PIX in part of the economics? How will this be charged for? And what will happen with Cielo as part of the PIX system? Will it be a traditional charge from the MDR? How would Cielo participate in this new system, PIX?

[Paulo Caffarelli, executive]

Thank you, Gustavo, for your question. This -- first of all, referring to the volume. We understand that up to present, the impact from the pandemic is behind us. This is what we have seen in the third quarter. We have had a frank recovery. And what was deemed as a baseline, we have been able to maintain this baseline in the last weeks of September. And throughout this month, we have observed a favorable volume, perhaps higher than what was budgeted as this was budgeted last year. What we do observe is a very good behavior in terms of volumes.

Now to speak more specifically about data from the corona voucher, I'm going to give the floor to Thiago, who has all the figures for establishments that receive this type of aid, the corona voucher.

[Thiago Stanger, executive]

Thank you, Gustavo, for the question. In terms of volume, year-to-date, up to September, we're referring to BRL 5.3 billion captured from the emergency help. And this BRL 5.6 billion has 375 people that were able to capture this BRL 5.6 billion. So 3,000 -- sorry, 5,300 in volume and 375,000 people included in this volume increase.

[Paulo Caffarelli, executive]

Gustavo, thank you for your question on PIX. Now in a certain way, what happens with PIX? We have a new system. And when a new system is in place -- we do apologize for that. When you have a new system in place, especially with the dimension of PIX, what is going to happen in practice? The debit will migrate to PIX, of course. If this can happen? Yes, of course.

On the other hand, we have to approach PIX according to the model used by India, and the PIX in Brazil is very similar to the Indian model. What happened in practice in India was that you had a growth in the base of users in the financial system, little reduction in traditional transactions and an incredible increase in the new transactions offered by this new payment system.

In Brazil, what we observe, first of all, is a market growth year-on-year in terms of credit cards. Between 2003and 2013, the average growth was 20% a year. And between 2013 and 2019, we grew 12.70%. And only in 2019, we grew 18%. Now when you look at that and add the consumption of families and think that less than 40% consumed through debit and credit cards, and if we are able to project this growth to 60%, imagine the volume of clients we would have at the disposal of the payment market.

When it comes to pricing, Gustavo, what happens in practice? We already have our pricing. Ours will be different. We do not have interchange nor the brand fees. It begins with a different design. But of course, each company will have its strategy. I'd rather not speak about our strategy because this will be a market with very tough competition, especially among acquirers.

[Operator]

Our next question comes from the webcast from Victor Schabbel from Bradesco BBI.

[Victor Schabbel, analyst]

The question is, we have seen a good change of mix in the 6 months from ARV to Receba Rapido. If you could give us more color in terms of the prepayment in large accounts.

[Gustavo Henrique de Sousa, executive]

Hello, Victor, and thank you for your question. This is Gustavo. The penetration of prepayment -- all modalities of prepayment in the large account segment was below 10%. And of course, this reflects a strategy that we have already remarked with the market since the fourth quarter of 2019. We have taken away the allocation of resources for prepayment in large accounts and are now applying resources in the long tail segment. Yes, therefore, there is a drop below 10% in large accounts, but on the other hand, very positive figures of a 32% penetration in prepayment segment among the SMB and long-tail segment.

[Operator]

Our next question comes from Giovanna Rosa from Bank of America.

[Giovanna Rosa, analyst]

I have 2. The first refers to the revenue yield. If you could speak about the participation of your client base and which will be the behavior of revenue yield in the coming quarters. Second, my question is about Cateno. The revenues dropped year-on-year a bit, but expenditures are growing almost twofold. I would like to understand if this refers to the mix that is going towards a digital system more. And how far has this mix changed? That increase of BRL 70 million in one year seems to be somewhat steep.

And if you could speak about the agreement with the Bank of Brazil in 2015, if there was a profitability goal and how you expect these expenditures to change going forward, so that we can carry out an analysis.

[Paulo Caffarelli, executive]

Anna, thank you for your question. Let's begin with the revenue yield. And I will repeat the question once again about revenue yield. We were speaking about our portfolio and pricing. Our portfolio at present has prices that are in full agreement with the competition. When it comes to new repricing movements, they will depend on what happens in the market.

When we look at our portfolio and our priority segment, which is the long tail segment, I don't see a great distance between what we had agreed upon in terms of prices. If this is going to change, it's not something I can project for you, Giovanna. And in the coming quarters, we have to follow up on the aggressiveness of competition. Throughout the year 2019 and until the beginning of this year, it made sense when we said, I still have part of the portfolio to reprice. Now this was done. Now we have to see if the prices will be stabilized through the market as a whole or if we will have a new wave of price reduction. And Cielo will have to await to see what happens in the market.

Regarding Cateno, more specifically, yes, this quarter and in the year as a whole, we had an increase in expenditures that refer to contestations. I don't have a breakdown of the mix, whether it was digital or not. But we did have a large increase in transactions of that modality, which is more subject to attacks, which can generate operational attacks. Now we have a disclosure of our volumes in our income statements and reports. And as we proceed, this Cateno has adopted corrective and preventive measures to be able to readdress what we saw in the second quarter more specifically and stronger in the third quarter. We do hope that these measures will begin to have an impact beginning in the fourth quarter as they are fully in effect and have already been implemented.

When it comes to the creation contract for Cateno, this is not a public contract. And unfortunately, I cannot speak about the obligations and duties of the parties to this contract.

[Operator]

Our next question comes from Mariana Taddeo from UBS.

[Mariana Taddeo, analyst]

I have a doubt regarding the portfolio mix. You were commenting that the large accounts at present represent 63%, and the idea would be to have a 50/50 balance. How long will it take you to attain that balance? And how should we think about volume growth? Will they be aligned with the market average or somewhat below because large accounts will be reduced? My second question refers to your record of receivables for November. Which will be the impact in ARV as well as in Receba Rapido.

[Gustavo Henrique de Sousa, executive]

This is Gustavo, Mariana. Thank you for your questions. Let's begin with the volume growth, and let's separate this by segment. As we mentioned here, in the large account segment, the growth will depend on the behavior of competition. Now if the present day conditions persist of a very aggressive pricing and huge appetite of the competition, we will tend to lose volume in large accounts. In our priority, which is the SMB and long tail segment, our growth is to grow more than the market, and we're working on initiatives to attain this. This is our priority segment, and we will recover space in that market. We will probably speak about initiatives in the release for the coming quarter. And we will probably gain in terms of market share because of these initiatives.

I cannot speak about when we will reach that 50-50 balance. If we look back in 2019, I think we have a good trajectory, and this should happen quite speedily.

In terms of the ARVs and RR, I give the floor to Caffarelli.

[Paulo Caffarelli, executive]

Mariana, when we think of our equation, way back, Cielo left aside part of the retail market. It had 50% of share in the retail market. It dropped to 30%. What we're doing at present is to rebuild our share. The more present we are in retail, the more we can be present in large accounts. And that is why we need this sorely. And we might increase our sales force for the beginning of 2021 because we need to have more of this long tail that will grow more than the market.

Let's speak about the ARVs and the central bank agenda, the Agenda 21, which is of the utmost importance, such as open banking and PIX. In ARV, what are we going to do in practice? In the bank, you would hold back 100% of the receivables when a prepayment made by a merchant represented 10% of the volume. The merchant lost 100% to take 10. So the central bank decided to protect those 10 with 10 and allow the merchants to use their receivables wherever they wanted.

Now this second movement means that we can open up further to increase and enhance competition. And for us as acquirers and as we are very active in the market, our goal is to seek other clients and other acquirers and other banks as part of this pricing process. Those who gain with this are the consumers, the merchants who will be able to analyze and compare prices. And above all, what will increase is the quality of the services rendered. We're working jointly with other agencies to prepare ourselves to enter this process as speedily as possible.

[Operator]

Our next question comes from Mario Pierry from Bank of America.

[Mario Pierry, analyst]

I have 2 questions. When you show in the graph that you have increased your client base by 91,000 clients, can you offer us more details how many clients came from the long tail, how many come from the SMB and the large corporate? I'm trying to gain an understanding of the mortality rates of all of these companies.

The second question, we have seen a considerable growth of the retail market online versus offline. Could you perhaps give us a breakdown of the percentage of your volume that comes online and how you can capture more of this online volume?

[Gustavo Henrique de Sousa, executive]

Mario, this is Gustavo. Thank you for the questions. Regarding our client base, although we do not break down the information between segments, the greatest part of the growth is in the long tail, in the base of the pyramid, which is our emphasis predominantly in this segment.

I'm not going to give you information on growth. I'm going to refer to volume instead. A percentage of the total volume of Cielo, it was 36.3%, I believe, and this has grown. When we compare this with the third quarter 2019, it was 15%. I'm sorry, it was 16.7% in the second quarter and 16.6% in the third quarter, a share of -- a growth of share in Cielo.

[Mario Pierry, analyst]

Well, let's go back to my questions. In the client base, what you're saying is that growth comes from the SMB, basically. Now did you lose your clients from the large corporate as well? And can we say that your growth in the SMB is faster than that number of 91,000? Is there a trend for greater mortality among the large accounts vis-à-vis SMB?

And if you could explain your strategy further. The company made huge efforts in the past, it seemed to slow down. Are you now going back to long tail? And what you said about e-commerce, 16% of your volume that comes from e-commerce, which is a segment that grows the most nowadays, which is your strategy to improve this percentage?

[Unknown Executive]

Thank you for the question, Mario. Let me illustrate a dynamic for you. Client base, the driver is the number of clients from the SMB in the middle of the pyramid. Now although you have a net figure, what is driving that number is the number of clients from the long tail. Now we have people coming out of the large accounts. But as the magnitude is completely different, it will not have an impact on the number of clients. We have 1, 2 or 3 clients coming out from the large corporate, and the impact will be on volume. We have -- they have large volumes [Audio Gap] that there will be a loss, of course. [Audio Gap]

the allocation of capital in an ARV as long as it is positive, is good. It's true up to a certain point where we begin to have risk devaluation. All of this was true until we were hit by the pandemic. Why? Because during the pandemic, we took some decisions to strongly restrict this anticipation for some segments, especially the tourism and entertainment segments that were strongly impacted by the crisis.

And this anticipation for some acquirers, this was due to the analysis of regulatory issues and obligations of acquirers, and we decided to become more cautious. So this risk assessment is important. And your comment is correct there. If we don't have the risk variable, any capital that is allocated is good. But what we observed with the crisis is that we have changed our risk assessment in some segments. In some segments, there is a risk that we're not willing to take on. And because of this, we're removing the capital allocation, especially for segments that operate with large volumes and are part of the large corporate accounts, the BRL 10 million that we had last year, presently operating at BRL 3.5 million.

Our cash position, that was BRL 3.2 million, is now at BRL 6.4 million. And the cash in the controlling company is presently at BRL 4.5 million. Throughout this year, during the year, we reduce leverage, we amortized all of our short-term obligations to be able to manage leverage and risk during the pandemic.

And we have spoken about this new balance at Cielo to enhance the share of the long tail. I won't go into details. But to respond specifically, when we speak about prepayment products in the long tail segment, you said that the volume is low, but I prefer to look at this differently. Here, we have a great deal of room to grow when I take away capital that is allocated in something positive.

But where we're concerned with the risk, I have only 31.8% of penetration. And for us, this is a record. It's very good for us because there's room to grow. From the second quarter 2019 up to present, we grew 23% to 31.8%. If we continue on in this trajectory, we will have a good cash allocation in a segment that has better returns than the ones we had in the past.

What I try to explain to you, Domingos, is this risk management during the crisis, a new cash allocation. And to show that we do have opportunities. We have low penetration vis-à-vis the competition, but a great deal of room to grow.

[Domingos Falavina, analyst]

Now I understand your risk assessment, especially among acquirers and risk sectors. Now the only part that is less obvious is that part of capital allocation that you mentioned. Now looking forward, and considering that the e-commerce segment will improve, will we have these large accounts going back to their former liquidity? Or do you think that this will not be the case?

[Unknown Executive]

Domingos, the new issue here in terms of management is the following. Cielo is holding back on its cash because we think that we have to have BRL 4 billion cash because of liquidity. Now this cash is available for anticipation only if and when we have an adequate return, if we find clients in any segment with adequate pricing. And if we do not detect any risks, we can grow again in those segments as well.

[Domingos Falavina, analyst]

And order of magnitude, which one would it be for adequate pricing?

[Unknown Executive]

Which would be the level of adequate pricing? Is that what you're asking?

[Domingos Falavina, analyst]

Yes.

[Unknown Executive]

If you have a cost that is EUR 110 million and if you think there is no risk, at BRL 150 million of CDI, it will be worth doing.

[Domingos Falavina, analyst]

So which is the cost of equity that you're working with to -- if you could anticipate this floor that you are referring to.

[Unknown Executive]

I understand how important your question is. But this information in terms of our floor and our share of equity, this is something that we do not share. I'm not expecting a return of 500% of CDI. For a client that has adequate risk, I have pricing that is in accordance with what the market is doing as well.

[Unknown Executive]

And simply to add here, Domingos, that point that I mentioned, the decision to no longer participate in some segments that have strong restriction, this has a significant impact on volume. And it's not a question at which level will you enter. What has to improve is the risk level. And among those clients, where we have become more cautious, it will not be an X return that will take us back. It simply has to improve.

[Domingos Falavina, analyst]

Well, that's the difference between you and some of your peers, not to work with those minimum returns and so and so forth.

[Operator]

Our next question comes from Daniel Alberini from CTM Investments.

At this point, we would like to end the question-and-answer session. We will return the floor to Mr. Paulo Caffarelli for his closing remarks. You may proceed, sir.

[Paulo Caffarelli, executive]

I would like to thank all of you for your participation. It's very positive to have this time with you and to explain to you which is our strategy and to show you that we're materializing the strategy. Thank you very much for your time. We are at your full disposal at the IR area or you can speak individually to all of us. Thank you very much for your participation.

[Operator]

The Cielo conference call ends here. We would like to thank all of you for your participation. Have a good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]